Hammerson quits retail parks and postpones Brent Cross extension
Faced with a potential shareholder revolt in the wake of its abortive mergers with intu and Klepierre, beleaguered shopping centre investor Hammerson has unveiled a new strategy to focus on core areas of business.
The company will exit the out-of-town retail sector and cut back on its development exposure. It will now focus on prime city centre malls, primarily in top 15 European cities, and premium outlets across Europe.
At the same time, in a bid to enhance shareholder returns, Hammerson is launching a share buyback programme and reducing debt. Head office costs will also be cut.
The strategy review was unveiled along with the company’s half-year results, which showed the size of the challenge facing chief executive David Atkins and his management team. Net rental income was down 3 per cent year-on-year at £178.5m; retail sales in the UK were down 2.5 per cent and footfall in the UK down 1.6 per cent, although in France sales were up 2.9 per cent and footfall up 2.3 per cent. Occupancy stood at 97.2per cent and the period saw a small uplift in leasing volume at UK shopping centres from £6.6 to £6.8m.
However, the company described “an unusually turbulent retail backdrop” which saw 104 units across the portfolio enter administration CVA, of which 87 are still trading. These slashed net rental income in the first half by £2.1m million and the full year impact is anticipated to be £5.8m or 1.5 per cent of Hammerson’s current rent roll.
Overall profits for the six months ended 30 June 2018 were flat at £120m.
Against this backdrop, chief executive David Atkins unveiled the results of a strategic review of the business drawn up with management consultants McKinsey. He explained: “Our results demonstrate the resilience of our business. We are taking tough decisions and have absolute conviction in our ability to deliver. By reprioritising our capital deployment and repositioning our portfolio, we will accelerate future shareholder value and returns.”
In practice this means stepping up the pace of disposals, including the complete withdrawal from the retail parks market. Hammerson had been aiming to sell £500m of stock this year but the target has been raised to £600m. This target includes July’s sale of two retail parks for £164m, significantly 10 per cent down on their December 2017 valuations.
The proceeds will be used to pay down debt and £300m has been earmarked for share buybacks to bolster the share price. Management is under pressure to achieve a share price of 635p, which Klepierre offered for the company in April.
Withdrawing from the out-of-town market will trim operating costs and long-standing chief investment officer Peter Cole will retire at the end of 2018. Simon Travis will assume responsibility for investments, and Mark Bourgeois for development. Jean-Philippe Mouton will also step down from the board but will stay on as head of the French business. Overall the company is targeting £7m of cost savings annually.
Hammerson is also cutting back its UK development programme. The planned redevelopment of Brent Cross, which would more than double the size of the scheme, has been put on ice. But the company says it remains committed to the redevelopment of the Whitgift and Centrale shopping centres in Croydon where it is in a JV with Unibail Rodamco Westfield. The CPO process is expected to be triggered shortly with a view to starting on site in 2019.
The changes will leave a slimmed-down Hammerson with a clear focus on two sectors: prime city centre malls in the UK, France and Ireland and premium outlets across Europe, held through its stakes in operators Value Retail and VIA Outlets.
Specifically within shopping centres, Hammerson intends to lessen its reliance on fashion brands and department stores, according to Atkins. He explained: “Our customer and retailer offer will be amplified, and this includes a step change in our retailer line up. We will reduce the amount of floor space let to department stores and high street fashion as we actively focus on the latest consumer trends and take bolder steps to provide the best retail mix.”
This will mean a step change in the retailer line-up: shrinking department store space by a quarter and high street fashion by a fifth, and replacing them with differentiated brands, aspirational fashion, leisure, events and lifestyle spaces.
Initial reaction from the market was less than ecstatic, with the share price barely unmoved at 540p.